Ohio Consumers' Counsel v. Public Utilities CommissionOhio Consumers' Counsel v. Public Utilities Commission
{¶ 1} This is an appeal as of right by appellant, Ohio Consumers’ Counsel (“OCC”), from an order of the Public Utilities Commission of Ohio (“commission” or “PUCO”). The commission approved an application by Cincinnati Bell Telephone Company (“CBT”) for alternative regulation of its basic local exchange telephone service in CBT’s Cincinnati and Hamilton telephone exchanges. OCC appealed, arguing that the decision is unlawful due to the inadequacy of the commission’s rules and their improper application.
{¶ 2} We hold that the commission appropriately relied on the relevant statutory amendments and created a lawful and reasonable test to effectuate those changes. Likewise, we affirm the commission’s factual determinations in approving CBT’s application.
BACKGROUND
{¶ 3} On November 4, 2005, Am.Sub.H.B. No. 218 (“H.B. 218”) took effect, amending provisions of the state telecommunications law. Affected statutes include
{¶ 4} The amendments to
{¶ 5} Together with these new policy considerations, the General Assembly expanded the services eligible for exemption from regulation or for alternative regulation in
{¶ 6} In response to H.B. 218, the commission established rules governing alternative regulation to cover basic local exchange service. See
{¶ 7} In
{¶ 8} CBT filed an application for alternative regulation, claiming that it had lost 18.6 percent of its residential lines in the Cincinnati exchange and 18.4 percent in Hamilton since 2002 and the presence of the requisite five alternative providers. On November 28, 2006, the commission issued an opinion and order {“Nov. 28 Opinion ”) approving the application filed by CBT seeking alternative regulation in CBT’s Cincinnati and Hamilton exchanges. It is from this order that OCC appeals.
{¶ 9}
{¶ 10} This presents a heavy burden for a party challenging an order, because this court consistently defers to the commission’s judgment in matters that require the commission to apply its special expertise and discretion with regard to factual matters. Cincinnati Bell Tel. Co. v. Pub. Util. Comm. (2001),
{¶ 11} We note that although we defer to factual findings and conclusions of the commission, the court has “complete and independent power of review as to all questions of law” in appeals from the commission. Ohio Edison Co. v. Pub. Util. Comm. (1997),
Stand-Alone Service
{¶ 12} OCC argues that the commission’s analysis of what constitutes a competitive service under Test 4 is too broad. Specifically, OCC’s first proposition of law asserts that when determining whether an applicant is “subject to competition,” the commission should not consider bundled-service offerings, but should restrict the field of potential competitors to providers of stand-alone basic service. OCC argues that phone companies offering packages that include basic local exchange service were already eligible for alternative regulation before the H.B. 218 amendments and that the amendments deal solely with basic standalone service. OCC asserts that therefore the commission can compare service only from a competitor that offers stand-alone basic local exchange service.
{¶ 13} The commission found that customers receiving basic local exchange service as part of a package are still considered basic local exchange service customers. Thus, the providers of those services are potential competing providers. The commission admits that these competing providers might not currently offer terms and conditions identical to those offered by a stand-alone service, but functionally equivalent or substitute services are readily available at competitive rates, terms, and conditions. The commission argues that
{¶ 14} The commission relied on the evidence that CBT has lost local exchange service customers in the presence of alternative providers and that those customers clearly view the other providers’ rates, terms, and conditions to be a competitive and reasonably available alternative to CBT’s basic service. The commission suggests that it is reasonable to assume that customers would not have switched from CBT’s basic local exchange service had they not considered the alternative providers’ rates, terms, and conditions to be competitive.
{¶ 15} In H.B. 218, the General Assembly amended
{¶ 17} The key issue is what constitutes “competition” within the meaning of
{¶ 18} OCC’s argument that only basic service competition may be considered fails to recognize the legislative guidance provided by the H.B. 218 amendments. In amending
{¶ 19} The commission established that bundled services provide competition to basic phone service. The commission determined that customers are switching service in the presence of competitors and that it is plausible to assume that those customers find the alternative services to be adequate substitutes for CBT’s services. The court will not reverse or modify a commission decision as to questions of fact in cases in which the record contains sufficient probative evidence to show that the commission’s decision was not manifestly against the weight of the evidence and was not so clearly unsupported by the record as to show misapprehension, mistake, or willful disregard of duty. Monongahela Power Co. v. Pub. Util. Comm.,
Extent of Market Presence
{¶ 20} In its second proposition, OCC challenges the commission’s application of Test 4, which awards alternative regulation if, for each relevant exchange area,
{¶ 21} OCC points out that the commission conceded in its order that Time Warner and Current Communications do not serve the entirety of either the Cincinnati or Hamilton exchange, stating that Time Warner covers a “majority” of the exchange areas and that Current Communications serves in “some areas of the Cincinnati exchange.” OCC also argues that the commission ignored OCC’s evidence that wireless carriers are not “readily available” “functionally equivalent or substitute services,” because they cannot guarantee coverage at all locations due to varying and unreliable signal strength.
{¶ 22} The commission counters that there is no requirement that all alternative providers offer ubiquitous service throughout the exchange. The commission rejected OCC’s argument as a “narrow interpretation” that would require the relevant market to be reduced from an exchange to an area as small as a city block to ensure that every single customer has access to all alternate providers. The commission stated that OCC’s argument would even require the commission to test wireless coverage in individual homes.
{¶ 23} This dispute is rooted in the geographic area the commission adopted in its rules as the “relevant market” for purposes of
{¶ 24} We affirm the commission’s finding that alternative providers have services “readily available” in CBT’s exchanges. The commission established the exchange area to judge the overall presence in that area, not a subset of that area. The commission found no requirement in the law or in its rules that an alternative provider must serve 100 percent of the relevant market. The commission points out that OCC supported using the telephone exchange as the relevant market in the 05-1305 rulemaking case. The area is small enough to share common characteristics while still providing years of historical data. Thus,
“Presence” of Alternative Providers
{¶ 25} OCC’s first proposition questions the legitimacy of Test 4. It argues that by requiring only the “presence” of alternative providers in the requested exchange, the test fails to include any consideration of the size of such providers or other indicators of market power such as market share or growth, as required by
{¶ 26} The commission disagreed, stating in its order that Test 4 reflects a more appropriate measure for consideration: the overall state of the competitive market as demonstrated by the presence of a significant number of competitive providers in the relevant market and by the applicant’s loss of a considerable share of its access lines. The commission found that factors like longevity in the market, while noteworthy, did not have a direct bearing on the state of the competitive market at any given point in time. The commission found that objective criteria, such as the required presence of several facilities-based providers, are more significant in demonstrating a healthy, sustainable market. The actual presence of facilities-based providers demonstrates a greater commitment by those alternative providers to remain in the market as competitors.
{¶ 27}
{¶ 28} Moreover, we defer to the commission’s expertise in deciding the most effective means of implementing the legislature’s intent. Here, the commission’s approach to measuring competition recognizes the practical realities of the market. For instance, by requiring that alternative providers be facilities-based, the commission ensures that alternative providers have demonstrated a real,
{¶ 29} Understanding of the current market is crucial to the analysis here. Again, we defer to the commission’s expertise in this regard. The commission complied with
Access-Line Loss
{¶ 30} In its third proposition, OCC also challenges the relevance of the applicant’s access-line losses since 2002 as a prong of Test 4. The line-loss prong of Test 4 requires a showing that the incumbent lost at least 15 percent of its residential access lines in an exchange since 2002.
{¶ 31} OCC questions how the line-loss provision satisfies the statutory criteria in
{¶ 32} The commission discussed the different factors it weighed when fixing on lost access lines as a factor in Test 4. The commission stated in its order that in exercising its judgment and discretion, it determined that “a minimum 15 percent residential access line loss in a given exchange, considering all the possible causes for such loss, accompanied by the presence of at least five unaffiliated facilities-based alternative providers serving the residential market in that exchange, is sufficient to justify alternative regulation.” Further, “[t]he line loss requirement measures market power, the level of competition that [an applicant] faces from alternative providers, and the availability of competing alternative services” in each exchange. Moreover, the commission found that the line-loss factor is practical and easily implemented, using readily available data. The commission also incorporated OCC’s suggestion to move the time frame to count the lines lost from 1996 to 2002, which takes into account the migration of lines affiliated with the beginning of the unbundled network element platform offerings in Ohio. Finally, the commission concluded that the two factors in Test 4, when combined, “gauge[ ] the sustainability of competing residential providers in the subject market area.”
{¶ 33} The General Assembly required the commission to develop rules to carry out the amendments.
{¶ 34} The commission’s finding that Test 4 adequately judges alternative competition by combining the presence of at least five unaffiliated facilities-based competitors with a significant loss of access lines is reasonable. The commission’s rules incorporate the market reality that there are some forms of competition that the commission has no power to regulate or formally review. Accordingly, the commission interpreted the intent of the General Assembly and developed a test to determine the level of competition and the availability of alternative providers regardless of regulatory oversight. The court has explained that it may rely on the expertise of a state agency in interpreting a law where “highly specialized issues” are involved and “where agency expertise would, therefore, be of assistance in discerning the presumed intent of our General Assembly.” Consumers’ Counsel v. Pub. Util. Comm.,
{¶ 35} Moreover, the legislature reserved to the commission the right to modify or abrogate the alternative regulatory treatment should any evidence show that the findings relied upon are no longer valid.
(¶ 36} We affirm the commission’s finding on the adequacy of Test 4 and its conclusion that CBT satisfied the line-loss portion of that test. Accordingly, we reject OCC’s proposition of law.
Barriers to Entry
{¶ 37} OCC’s fourth proposition asserts that CBT failed to show a lack of barriers to entry for competitors offering stand-alone basic service and that the commission’s rules improperly permit an award of alternative regulation without such a showing.
{¶ 38} The commission established its view on the lack of barriers in the 05-1305 rulemaking case. The commission stated that all companies attempting entry into a new market are confronted with at least some difficulties. Therefore the issue becomes whether these difficulties can be overcome by competitors or whether market conditions present true barriers that prevent or significantly
{¶ 39} OCC asserts that the commission’s standard for finding no barriers is too low. OCC argues that the commission has improperly interpreted “no barriers” to mean “no significant barriers.”
{¶ 40} Factually, the commission did not find any evidence in the record of any barriers to entry present in the requested exchanges that might bar providers from entering those markets. The commission found that the effects of the potential barriers pointed out by OCC’s expert in the 05-1S05 rulemaking case, Dr. Roycroft, are minimized by federal and state laws. In addition, the commission found that Dr. Roycroft failed to identify a single barrier to entry applying specifically to either of CBT’s two requested exchanges.
{¶ 41} We find that these issues involve another factual determination by the commission. The commission developed an independent test to assist it in making its factual determinations under the statute. The commission’s rule for determining the presence of alternative providers and access lines lost (i.e., customers lost) is a reasonable indicator that there are no barriers preventing entry in the exchange.
{¶ 42} OCC’s interpretation of the lack-of-barriers requirement would impose an insurmountable burden on applicants for alternative regulation. No market is completely barrier-free. OCC’s suggested test, in which the commission would have to find that the market presents no difficulties or risks for new entrants, would place the alternative regulation contemplated by the legislature out of reach for most applicants.
{¶ 43} In establishing the criteria for determining the absence of barriers, the commission identified those factors that it believes are significant for the purpose of complying with the intent of H.B. 218, while at the same time not making the test so demanding that alternative regulation as contemplated by H.B. 218 would be unattainable. H.B. 218 provided no definition of “barrier” and no criteria for finding a lack of barriers. The commission pointed out, and we agree, that although the legislature provided general guidance for granting alternative regulation, “the ultimate decision-making authority regarding that implementation was left to the Commission.” We cannot accept OCC’s contention that Test 4 fails to properly address the absence of barriers to entry. And the commission’s factual finding, that in this case CBT provided sufficient evidence to establish those criteria, will not be disturbed by this court.
Public Interest
{¶ 44}
{¶ 45} The commission responded that in a competitive environment, further commitments are not appropriate, and the market itself will encourage innovation and generate consumer benefits. The commission found that competition will provide appropriate incentives to maintain affordability, innovation, diversity of choice, and other public benefits.
{¶ 46} While the commission reiterated its belief in the importance of ensuring that the largest numbers of residents have access to high-quality telephone service regardless of income or geographic location, it also recognized the legislature’s direction that market forces be allowed to create an environment that will promote competitive pricing, thereby maintaining just and reasonable rates. The commitments required of applicants for alternative regulation, set forth in
{¶ 47}
{¶ 48} Moreover, the public-benefit finding is a factual determination made by the commission. Its finding that CBT had met the requirements for a showing of public interest is not one that will be disturbed by this court absent a demonstration that it is clearly unsupported by the record. AT & T,
{¶ 49} Having considered the arguments and the record carefully, we affirm the commission’s finding that CBT’s application is in the public interest and reject OCC’s argument.
CONCLUSION
{¶ 50} Ultimately, OCC is appealing Test 4, the rule that the commission adopted to streamline its review for alternative treatment under the statute. The rule, as applied to the facts in this case, satisfies the statutory factors needed to award alternative treatment. The commission made appropriate factual determinations. OCC’s arguments should be rejected and the commission order affirmed.
Decision affirmed.
Notes
. Basic local exchange service is defined in
. In so doing, we note that Test 4 also requires a showing of a decrease of at least 15 percent of residential access lines since 2002. The adequacy of the test cannot be judged solely on the number of alternative providers. We reject OCC’s argument that an alternative provider must have a ubiquitous presence in the exchange.